What is your outlook on the road ahead? US has come out with stellar GDP growth numbers -- 4.1% for US is like India notching up 15%. A lot of economists say it would lead to more outflows. America is once again becoming the darling of investors at the expense of markets like India?

Yes, that could be a possibility. The moment US starts doing well, FIIs start pulling money out of the emerging markets and start investing in more established and developed countries like the US. A couple of things have to be noted. One, the US markets have been doing well. Even Indian markets are doing well, but at the same time, the US Fed has been hiking rates. That does not augur well for the Indian equity markets or the Indian fixed income markets as well.

FIIs have been focussing more into the trend wherein they would like to evaluate India vis-à-vis other countries. If they are not finding enough opportunities within India, they would not hesitate to moving to other countries like the US which are more developed and offer a better risk reward profile compared to Indian markets at the moment. There could be a possibility that we can see more outflows from the Indian markets if some of the underlying factor does not change in favour of India. The FIIs may consider moving out of India to other markets which are comparable in terms of risk or offer a better risk reward profile.

This is going to be a big week where we are going to see a lot of monetary policy action being announced in India by the RBI FOMC. The Bank of Japan, the Bank of England all are going to come out with policies. A lot of that is going to have impact on flows. There was volatility in forex, crude price and other commodity prices along with a trade war. Where does that leave India because FIIs remained net buyers last month?

The buying by FIIs in July does not indicate much because the number of net buyers are pretty miniscule compared to the net outflows that we have witnessed over the last three months till June.

The other thing that I would like to highlight here is that the concerns continue to persist. Some of the influencing factors do not change dramatically. Crude oil continues to be at an elevated level although it has come down from its highest peak. The rupee stabilised but it has already depreciated almost 8% against the US dollar since January. Then we have US Fed hiking rates, global trade war intensifying. In the domestic side, we are entering into an election phase.

India is one of the better performing markets in the world as of now and the valuations definitely do not look too cheap for FIIs to build comfort around here. That is one of the things FII will evaluate in India compared to other countries. They will go wherever they get attractive valuation almost at a similar risk reward profile.

On the positive side, we have seen a better corporate results this quarter. However, that needs to be sustained going ahead. It should not be a one-off kind of an exercise because it is one of the things that FIIs have been waiting for a long time.

Any negative surprise on that area may again drive FIIs away from the Indian markets. July has been good as FIIs have turned net buyers although it was only recently because of the US $404 million inflow that we received on July 27th that they turned net buyers. But still it is a good start. However, it does not indicate a change in trend. It could be a short-term investment opportunity, given the markets have been doing well.

FIIs would also try to capitalise on the surging markets in India. A lot of things need to be captured before or need to be evaluated before we understand where FII flows are actually heading.

You mentioned about earnings. Do you think that is the biggest point why anybody would want to invest because corporate earnings to GDP as a ratio is pretty low. That continues to be the crux of any investment into India from an FII standpoint of view?

That is one of the factors that they would look at. The better earnings growth that we have seen this quarter after a long time, is a positive indicator and that is where you can see that the inflows into the Indian market in July has been minuscule. That will definitely be a factor if that sustains going ahead.

Sustainability is very important because that will in fact display India in terms of economic growth path. It is an important factor that FIIs will definitely look at but at the moment they are adopting a wait and watch approach. Just one quarter of good quarterly earnings may not really indicate too much. Earnings need to be sustained if FIIs have to build conviction on India again.